Production Efficiency in the Austrian Insurance Industry: A Bayesian Examination

This paper examines the developments in the production efficiency of the Austrian insurance market for the period 1994-1999 using firm-specific data on life/health and non-life insurers obtained from the Austrian insurance regulatory authority. The article uses a Bayesian stochastic frontier to obtain aggregate and firm-specific estimates of production efficiency across insurer types and time. The study provides strong evidence that the process of deregulation had positive effects on the production efficiency of Austrian insurers. The life/health and non-life firms showed similar patterns of development in that they were less efficient during the years 1994-1996 and significantly more efficient in 1997-1999. If the Austrian experience is representative, similar benefits from deregulation may be expected for the Central and Eastern European countries that prepare for the accession to the European Union.